The “Merton Rule” - How will it affect the construction and development of hotels?

United Kingdom

At the end of 2007 a group of cross party MPs introduced a Private Member’s Bill to the House of Commons seeking to reinforce the “Merton Rule” in an Act of Parliament. This Bill passed its second reading on the 25 January, although whether or not the Bill becomes law is a matter of pure guesswork at this stage.

However, the “Merton Rule” does seem to be here to stay. So what is the “Merton Rule” and how will it impact on the construction and development of hotels in the UK?

What is the “Merton Rule”?

In simple terms it is a requirement that in relation to all non-residential developments above certain size criteria (which will catch most hotels) at least 10% of the energy to be generated by those developments should be provided on site from renewable sources. This 10% rule was first pioneered by the London Borough of Merton in 2003 in its then Unitary Development Plan.

Wider endorsement

To date approximately 140 local authorities have now adopted the “Merton Rule”. For one local authority to instigate a change that has become a national change is ground breaking.

The Rule has also not only been endorsed by Government Ministers but also the recent Planning Policy Statement (“PPS”) on climate change requires councils to adopt the “Merton Rule” style policies in order to procure greater renewable energy use in non-residential developments.

The PPS does not refer to a specific percentage. Instead local authorities will have autonomy to negotiate their own local targets (and obviously there are different number of variables which need to be considered in relation to each individual area and whether certain types of renewable energy would actually be workable in that area). The PPS does not specify special rules for hotels. Instead the PPS sets out general rules for commercial buildings which will include hotels.

As they have been given discretions some local authorities have actually gone further when adopting the “Merton Rule” and have gone on to demand a target of 15% rather than 10%.

How does it work in practice?

A developer will need to look at the likely energy consumption per square metre for the hotel being constructed. There is then a calculation of the likely carbon emissions from the scheme. This will differ depending on whether the proposed heating system is produced with gas or electricity. Electricity supplied heat produces more carbon dioxide emissions than gas so the amount of renewables required to generate 10% of the development’s raw energy need would increase.

The focus is therefore on the proposed hotel’s lighting and heating requirements. In fact in the first development where the “Merton Rule” was implemented in 2004 it was only possible to assess the lighting requirements at the time planning permission was granted. The 10% target was met by the developer installing micro turbines and solar panels to deal with the “lighting emissions”. The developer was also required to provide a cash fund as part of the section 106 planning agreement with this pot being made available to occupiers so that they could install energy efficient systems in due course once the heating requirements were known.

Issues for developers to think about

There is a wide range of issues including:

  • How will the 10% target be met on any particular hotel?
  • Persuading local authorities to adopt a different and more specific target for a particular hotel scheme in accordance with the PPS. For example is the site more appropriate for wind turbines than some other form of renewable energy?)
  • Will the developer be installing the wind turbine or other appropriate equipment or will this need to be undertake by a specialist third party? If a specialist third party is to be used, what are the consequences for the developer in the event of that party defaulting on its contractual obligations?
  • Who will be responsible for ongoing maintenance and repair of the renewable energy source? Will there be separate “supply contracts” between hotel operator and the supplier or will this all be dealt with under the lease or management agreement with the owner being primarily responsible for making sure energy is supplied?
  • What sort of back-up facility should be installed to cater for the possibility of the energy to be supplied being interrupted and to what extent can the operator have a self-help back up in the event of non-supply of the energy.
  • Will local authorities accept that some form of “off site” provision is acceptable instead of the “on site” provision required by the “Merton Rule”?
  • What will be done with any excess energy generated?

Why should hotel developers embrace the “Merton Rule”?

Firstly there may well be a number of advantages including the obvious in terms of greater community benefit and corporate social responsibility. Secondly, in any event, hotel developers are unlikely really to have any choice in the matter!